Former CEO pleads not guilty to fraud

Tuesday, July 31, 2007

ST. LOUIS -- The former chief executive officer of defense contractor Engineered Support Systems and his son pleaded not guilty Monday to charges they illegally backdated stock options.

Michael Shanahan Sr. and Michael Shanahan Jr. entered their pleas in a federal court in St. Louis.

Federal prosecutors accused the men of backdating stock options between 1996 and 2002 in a scheme they claim enriched executives and board members by nearly $20 million.

Shanahan Sr., 67, was the chief executive of Engineered Support Systems, a company that supplied military support and equipment. He is also the former owner of the St. Louis Blues hockey team.

Shanahan Jr., 40, was a member of the board of directors at Engineered Support.

Also charged is Gary Gerhardt, former chief financial officer at Engineered Support, a suburban St. Louis-based company acquired by DRS Technologies Inc. in 2006.

Assistant federal prosecutor Michael Reap has said the men were able to retroactively pick dates for stock options that coincided with low points in the company's stock price.

Attorneys for Gerhardt, who first was charged in March, have said auditors for the company knew of the stock trading practices and that it was not considered illegal.

Attorneys for the Shanahans previously have said they will use a defense similar to that of Gerhardt.

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